Good day, ladies and gentlemen, and welcome to the Q4 2012 Stora Enso earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Paajanen-Sainio, Head of Investor Relations. Please go ahead.
Thank you, Samine. Good afternoon, everybody, and welcome to Stora Enso's Q4 and full year 2012 conference call. We will have a short presentation here with our CEO, Jouko Karvinen, and CFO, Karl-Henrik Sundström. Jouko, please go ahead.
Thank you. Welcome, everybody, to the fourth quarter and full year conference call. If you go straight to page three, which is the operational EBIT and cash flow chart of the company for the past couple of years. I guess the key message is a stable EBIT, a little up year-on-year, a little more down sequentially, and a very, very strong cash flow. In all transparency, the fourth quarter cash flow includes about EUR 80 million cash flow injection from our forest associates. Even if you take that out, I think it was a very strong performance on the cash flow side. If we move to page four, the EUR 155 million EBIT, stable, I call it already. The cash flow EUR 471. With that, we believe a very strong liquidity of EUR 1.845 million at the end of the year. Return on capital employed and weak 7.1%.
I would like to highlight when you do the comparison that the order of 1.5-plus points of that is the fact that we, in 2012, also have invested in strategic investments, and we have significant amount of capital on the balance sheet that does not or did not generate any revenue then. That obviously is in line within our strategy of where we invest or not. A stable dividend at EUR 0.30 a share. We move on to page five, which actually goes straight to the Printing and Reading the paper. Sorry. Let's highlight a couple of points there before I talk about the market, which obviously includes some of the implications of our proposed actions and the short-term outlook. This is again EBITDA and cash flow instead of EBIT. Why EBITDA?
The EBITDA seems to be the one number that all of our competitors also use as a direct operational number. There is no biological asset revaluations or impairment reversals or impairments in there. Throughout these past couple of years that we show here, I would suggest that we can say a strong cash engine. If you look at the table below, the fact that in a relatively challenging market environment, we were able to actually improve the cash flow, I think a good achievement. A smaller detail, maybe both sequentially and year-on-year, we've been able to improve EBITDA. The everlasting question, "Yes, but what about the integrated pulp there?" I can tell you the 10%-11% EBITDA margin here. There are a couple of points in there for the fluff pulp.
We happen to think that because you can't sell it anyway, that it should be in the numbers, but for your own comparisons, that gives you the figure there. Moving on to page five. A curve that you probably like as little as we do. It's not a forecast, it's the actual development of the European paper demand. As you can maybe see towards the end of it, the late part of 2012, possibly possible, more challenging in demand development than we thought, but if I may respectfully say, than you thought or any of the agencies thought, even in the mid-2012 area. To say it is what it is, I believe it's a combination of the economic cycle and the structural demand phase, that's the reality.
When you dive into the segment, as we've said in our CEO comments also, the reporting numbers now are 9% down both in newsprint and coated mechanical. That's where we are. Page seven essentially shows you the same curve, but then it uses one of the agencies' forecasts three years ago, two years ago, and one year ago. I guess this, again, is a reflection on the fact that the development, primarily through the structural change, has developed less favorably than pretty much anybody expected. With that, we go to page eight. Not the first time, we have done this in the past five, six years many times. We are proposing to reduce newsprint capacity, 475,000 tons. If you add the machine that we shut down permanently at the year-end in Skutskär, it's 650,000 tons.
Cost savings, EUR 24 million. The EUR 42 million write-down, the cash produce was EUR 400 million, in order of 300 people impacted. Let me try to be very clear. The reason for this is not the ongoing price negotiations or any of that. The reason is, consistently with the past, when the demand goes down, we have and we're taking high-cost capacity out. The math for us to give a return to our company on these actions is based not only on the cost savings, like so many times before, we're taking low-margin volume from several assets out, we move the better margin volumes from the would-be close assets to lower cost assets. That's the math. Our math does not include any dreams of general price increase or anything like that. That's not the math.
Even with this math, we believe this is a necessary and reasonably attractive payback for the company. You could say 650,000 tons or 475,000 tons, is this going to make a change? First of all, it's a segment-based number, obviously. If you believe that the face value overcapacity is calculated based on European production versus the European demand, and you take into account the net exports, actually, our view is that this capacity significantly changes the demand supply situation in Europe from this point. Move on to page nine. Our next challenge is Building and Living.
A very difficult business. If you look at the graph, I'm not going to go through the details there, but essentially, you can see that five, six quarters, we are at profit and cash levels that are not acceptable. That's why we need to do another workout. Moving to page 10, where we target EUR 30 million cost reductions with a relatively or actually very small cash impact on one-time. Why? Because a lot of the savings are based on massive people reduction, they're based on converting fixed cost to variable outsourcing, insourcing configurations, simplifications of our IT systems, energy improvements, consulting, and so on.
I think you would agree with me that looking at the financial performance of the DA, even if we think that it may not be that bad in its own league, it's not good enough. Therefore, we have now decided to launch some plans. That's the restructuring news. Page 11. We talk about the strategic investments. On page 12, I talk about China. Skoghall started up on November 8th, as planned. Ostrołęka started up in January, actually six weeks ahead of schedule. It's actually now in the ramp-up for the next couple of months. So far, looks very good. The reality is, though, that before it's really commercially up and running and starting to generate the real returns for us, that'll be more in the second quarter, because I've finally learned also that these things don't totally ramp up in a day.
In the next couple of months, I'm confident we'll get it up and running as planned or maybe even slightly ahead. Montes del Plata, the large investment in Uruguay, 80%+ completed, and based on the most recent information from our management and our board there and the partners, we're still targeting a mid-year 2013 start-up. Let me move on to page 12. China. Let me start with this. I am equally or more positive on China than I've ever been. The truth is we said in April 2012 that we expect to get the final approval from the Chinese central authorities by the end of 2012. As you can guess by now, we didn't, which means that we're about six weeks late right now. That's not a big worry for me. Why? It's a very large investment.
We're using every day, every minute now, this time before we need to make large capital commitments to prepare as well as we can, including with testing and verifying our wood supply ramp-up, including testing mechanic harvesting, training people. We're obviously in full force on the technical and commercial discussions to optimize those things. Therefore, everything we do now will not only reduce risk in the actual implementation phase, but also make that obviously a more efficient plan. Strategically, I'm as convinced as ever this is a good project. I'm equally convinced that the Chinese government, on all levels, sees that this is good for China. An example, we have the one and only plantation with the full FSC certification and Chinese certification in China.
The fact that we have not committed the capital means that the running cost of the industrial side and the training and the verifications cost us very marginally, and the forest, that actually grows value every day. Yes, we're six weeks late, and then on the cool side, but I think you would probably agree with me that with all the changes going on in the Chinese government, now after the Chinese New Year and so forth, that's not a big surprise. We move on to page 13, return on operating capital. We highlight there the two growth engine business areas, and the picture is basically telling you that. Of course, in the group level, the impact of the non-revenue generating investments in 2012 and 2011, well, 2012 was 1.5 points on the return on capital employed.
You can see that especially in Biomaterials, but also in Renewable Packaging, whether you look at the full year or the fourth quarter, we actually are clearly value creating in those modes. We believe that once the gray parts of the bar are actually generating revenue, they will do nothing but enhance the value creation. Page 14, a four-quarter roll in cash flow. Top of the chart is the cash flow from operations. With all the instability in the market this and market that, I think this has been a strong number and continues to be a strong number. The restructuring actions are done to secure that in those VA. Then you can also see that the cash flow from investment activities obviously is somewhat impacted, but clearly still in a positive territory given the large strategic investment.
Let me stop here and hand it over to Kalle for page 15.
Thank you, Jouko, and good afternoon to everyone. I just want to go through some financial slides before we hand over to the Q&A. First one is this financial summary, which is slide 15. I want to point out that we had an increase of EUR 10 million in operational EBIT compared to the year-ago period. We actually decreased by around EUR 20 million in operational EBIT in sequential. Another thing I would like to draw your attention to is that the profit before tax, excluding NRIs, in the fourth quarter of 2012 versus the fourth quarter of 2011 has decreased by around EUR 60 million, and that's basically due to the Bergvik forestry valuation. I also want to point out the strong cash flow and the improved net debt to EBITDA for the last 12 months.
If we turn to slide 16, you can here see the sequential decline of EUR 20 million, which is basically all caused by increased fixed costs. They're basically the 2% there is basically divided into two distinct areas. One is maintenance, and it's around Skoghall and Sunila. The Skoghall, we actually included in our guidance into Q4. The other part is the seasonality in the salaries that we're having in Stora Enso. If you compare to a year-ago period, you can see that the sales price for the total Stora Enso is down 2%, but it's compensated to be able to create a EUR 10 million higher profit due to volume, and variable cost decrease. If we move to slide 17, you see here that we are in the trend of reducing working capital over sales.
In the last quarter, we managed, and actually it reduces from 18.4% of the sales to 17.2%. This is something that has been a long and hard work, and it's something that we feel very good about. If you move to slide 18, you see that we now are actually coming down in the net debt over EBITDA to 2.5 times. The reason for that is that we are having a fairly stable EBITDA, but more importantly, a very strong operating cash flow in the fourth quarter. If we turn to slide number 19, which is the guidance for the Q1 2013. Sales are at roughly the similar level as we had in the previous quarter. Operational EBIT, in order of magnitude, one-third lower due to deterioration, European paper, and Building and Living market.
The restructuring plans that we are planning to implement will impact the group results from H2 2013. If we turn to slide number 20, this is a projected CapEx and equity injection plan for 2013. I repeat, this is excluding the investment in China. We will, once we got the permits that Jouko referred to, come out with plans telling you that. This is the plan excluding the China investment. If we move to our last slide which is the summary. A Q4 EBIT improvement versus a year-ago period. We have strong cash flow and liquidity. Paper capacity reduction plan to address in the declining paper market, and we are adjusting and leaving cost structure. Skoghall and Ostrołęka investments started up and ramping up, and Montes del Plata start up mid-year 2013. With that, I hand over to the Q&A session. Ulla?
Okay, yes. We are ready to Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press the star or asterisk key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will pause for just a moment to allow everyone to signal. We will take our first question from Mikael Järv from Cheuvreux. Please go ahead.
Yes, hello. Good afternoon, everybody. I have two questions. One is on China. Could you please try to explain a little bit about these permits that you're waiting for? Are they environmental permits or building permits? Just some clarification would be helpful. Then the second is more of a housekeeping question. If you could please quantify the impact, if possible, on the Renewable Packaging from these temporary production disturbances that you write about in your report. These were my two questions. Thank you.
Thank you, Mikael. This is Jouko. I actually got the question in a different context earlier today. With these plantations and the type of investment, there's hundreds and hundreds and hundreds of different permits and approvals and so forth. What we're waiting for is essentially two things. It's the NDRC, which is central authority, final approval, which then defines the status of the project and so forth and so on. That's one approval. Then things go further, and then there's what's called a MOFCOM approval and so forth. You should not worry that we're missing environmental or certification or anything like that. I don't want to call it the final stamp, but it's the final central authority approval that we definitely want to have before we would make capital commitments, right?
Once you make those commitments, then with all due respect, then we need to move decisively and fast. As you well know, two years after you launch a capital commitment, then it gets very expensive. I will be maybe the bad guy who's being very clear, saying, "I want all the formal approvals done so that we have a clear road ahead," and that's what we're practicing now. Sorry for the long answer, and Kalle can take the other one.
What you're referring to is the problem. We had, and it was part of my presentation also, that we had maintenance windows in Skoghall and Sunila in Q4. In the fourth quarter, we had problems of starting up after the maintenance window in Skoghall, but we also have some issues in Imatra, and altogether, I estimate that to be around EUR 5 million.
Okay. Thank you very much.
We will now take our next question from Johan Stjernberg from Carnegie. Please go ahead.
Yes, thank you very much. Coming back to your comments upon Montes del Plata here. Can you say something about what type of a ramp-up of production one should expect now in mid-2013? And if you could say something about the EBIT impact in Biomaterials in Q1 from the maintenance shutdown.
Okay. I always try to take the first one, then Kalle can do the second. I'm not totally sure how to answer, let me start this way. The mid-year is when people say "Product," that's what the experts say when the first chip goes to the digester, that obviously is the day one when you start ramping up and so forth, it will take several months. I won't be able to give you a quarter-by-quarter EBIT impact on that. The other way around, what we're doing now, I can share that with you, is we're putting all the efforts obviously on the schedule, we are also putting even more efforts on quality assurance so that we get a successful ramp-up.
Economically, if we would be a week or a day or whatever late in the first day, that's not so important. It's very important when the first chip goes to the digester that then we actually can ramp it up. There are examples from other companies where you can say, "Well, I have the day one," but that doesn't count for me. Essentially, the mid-year is when we start ramping it up, we're trying to do everything and anything that we have, even though it will take several months to successfully ramp up to premium quality products, which is also what our customers expect. That's, I think, the best I can say. Kalle, can you-
If you're referring to what we talk in the guidance about the Veracel maintenance that we are talking about, the window that we are talking about in Q1. The delta between Q4 and Q1, it's in the ballpark around EUR 10 million.
EUR 10 million, okay. If you look at also just on your restructuring measures also now within newsprint, you're saying that this will have quite a significant impact upon the supply demand balance in Europe within newsprint. How is your own production profile, or what type of operating rates do you see yourself running with as an average within Printing and Reading? I understand that newsprint will be quite high, but I guess there are other product segments which are much lower.
Well, not to take too much time, but remember I defined the over capacity as production in Europe, taking into account the next exports versus European demand. Against that, the over capacity in Europe grade by grade varies between 3%, 4%, 8%, 9%, and so forth. The truth of the matter is, therefore the impact of this 475 plus Skutskär in our books is it's not only going to move the needle, it's going to really change the position. To answer your question on operating rates.
On newsprint, if and when we implement this plan, definitely will have a significant impact on our operating rate, but also very important, like I always say, is that managing the customer portfolio and when we shop capacity within Stora Enso, we believe that there's a great value enhancement when you can make sure that the volume you get rid of or don't produce is the lowest margin volumes. In the planning, we always do this.
Okay.
On the other grades where we have not announced anything permanent, like before, where especially because it's more possible in some countries than others, we will focus very much on cash generation and strong cash generation. We will take an active and aggressive curtailment where it needs to be.
Okay. Just, Kalle, can I ask you two questions upon your income statement also? If you look at financial items, what is the net interest rate cost in Q4? Also what tax rate should one use as an estimate for 2013, would you say, from a group level?
I think the best way to do it, you know that if you take the interest rate, is to use five and a quarter as an interest rate on the debt.
Okay, great. The tax rate for 2013?
I would say about 20. Can I have a look at that and come back to you?
We'll get back to you after a couple of questions to give you the correct answer.
Thank you very much.
We will take our next question from Linus Larsson from SEB. Please go ahead.
Yes, thank you very much, and good afternoon. Coming back to your guidance for the first quarter. If I understand you correctly, you're guiding for a sequential decline of around EUR 50 million. Could you break that down, please? Could you say, for instance, how much of that is relating to the Printing and Reading division?
Linus, this is Jouko. I'm the easy one to give you a rough answer rather than too accurate. Majority of it, clear majority of the drop is Printing and Reading and still Building and Living. Remember where they were in Q4. There isn't that much to drop, so to say. On the Printing and Reading, without giving you exact numbers, it is in Q1 specifically now with the demand drop, yes, we'll do more curtailment. That will also have some cost implications. Without getting too specific, obviously there is pricing pressure too. Which is why we are launching the action now to have better outlooks in the future.
Do you expect any of your divisions to be at or below EBIT break even in the first quarter?
If you forgive me, I'll stick to the principle that we don't give segment guidance on this. If I started, you'll never let me stop.
Yeah. No, that's fair enough. Again, just to better understand your guidance. In the fourth quarter, did you have any FX gains? If so, how much included in your EBIT?
No, we did not have any FX gains. I will give you now the tax rate for the previous question, and that is 15%-20%, I would say. Use that.
Yep, that's great. Also coming back, a follow-up on Guangxi. If you were to give a range as to the possible CapEx in the current year, I guess it could be the low end of that range, I guess could be zero, but what could the high end of that range be?
Kalle can think about the number answer, but let me just say this, because it's a very good question. I don't expect it to be zero for the reason I already explained. In some ways, please think about it this way. Right now, a delay of a month or six weeks has no economic impact materially in the value creation of the future of the company. In a funny way, I think you agree that the closer we get to cash being generated by Montes del Plata and Ostrołęka and the others before we spend huge capital in Tiger, it's actually not a bad thing. There's a bit of a balancing there. Kalle, do you want to give a ballpark of the maximum?
No, I don't want to give that, because if we give that, we start to talk about a plan, and we have decided to say, once we get the permits, we get that.
Yeah.
That's fair enough. On your other big project, the Montes del Plata project that we talked about earlier, and the ramp up and so forth, is there a possibility that we will actually have a negative first, third quarter impact on the EBIT line from this startup, that you will actually see some costs before you see some revenue? The first quarter of that startup curve will be a negative contribution. Is that something that we should anticipate?
Well, mathematically, whether if it's a big pulp mill or a big integrate, definitely. Essentially, if you think about it, if it's a linear curve from, if you could do it in three months, you have half the volume coming out, but you have 100% of the cost coming out, right?
You have all the capital, all the people. Which proves my earlier point, I think, that when you start it and you get the people in there and all the costs in there, then you do want to ramp up in a decisive and relatively fast manner. That's a long way to say, yes, third quarter is not going to be a goldmine in Montes del Plata if we start mid-year.
Mm. And with your-
I think that's fair. Sorry.
Yeah. With your experience, even a successful startup could be a negative EBIT contribution in the first three months of its lifetime.
Well, this is, to be honest, personally, it's my first pulp mill. I was just trying to use the example that if you do a three-month ramp-up from zero to 100, the average revenue is 50% of the full, right?
You have 100% of the cost.
Sure.
Even with these margin levels, well, it's not a goldmine.
We need to get in the first three months.
Yep.
The second three months we can talk about.
Sure. That's great. Just finally on the Corbehem situation, if you could give an update, what's going on? What's the timeline there?
We're working on it, I know it's a bad answer, it's progressing as I expected. The best news I can give you, there is no change. We're still implementing the plan to try to sell the asset.
I don't want to give you a timeline because, wow, that would be, if possible, more difficult than trying to decide on any individual permit anywhere else. We're full speed, full resource, working on trying to get that done.
Right. Just so I understand it clearly, the plan A is pretty much to sell it in order for it to continue the production of the product that is currently produced?
Let me rephrase it. When I look at the exact product portfolios of the company there, in the remaining assets, the best outcome obviously is that it would be sold, then it would produce products that are not exactly competing with the rest of our business.
We'll see. I don't want to go too far before it's I'm sure we'll give you an update in next time we talk, Linus.
Okay.
Where we are with it. Yep.
That's great. Thank you very much.
Thank you.
We will take our next question from Lars Kjellberg from Credit Suisse. Please go ahead.
Yeah, most of my questions have been answered. Just have a questions on the consumer board market. If you want to shed some light what's going on there. There's been talks in the trade press of some spot pricing pressures, and I guess somewhat softer demand. What are you seeing in those markets? One of your competitors, International Paper, talked about weak consumer packaging board markets overseas as a spot of weakness in their fourth quarter results. Do you have any light to share?
Well, first of all, I'll take the easy part. We don't comment competitors, and especially don't comment competitors' comments.
What are you seeing then?
I would say this, we think it's actually, especially relative to the overall economic situation, it's a very okay market. I have enough issues in many other places, but this, we don't actually see anything significant. If there would be, we would have said that also. I guess you can conclude that I may be more positive on that than the competitor you mentioned.
In terms of pricing trends, et cetera, that's commented in the trade press, is that something you've experienced?
Same thing. Stable market, depending on the segment, some growth and so forth, stable price levels too.
Overall stable price levels.
Yeah.
All right. That's all from me today. Thank you.
Thank you.
We will take our next question from Antti Koskela from Danske Bank. Please go ahead.
Yeah, thanks. Few questions left. Firstly, on your newsprint capacity shutdowns, where you expect EUR 24 million positive item from fixed cost reductions. You're expecting also EUR 190 million negative top-line impact. Did I read it right? Do you expect the full EUR 24 million to contribute your EBIT line? That would be the first question. Secondly, if you could talk a little bit about your pulp balance going forward with these capacity closures now excluding Montes del Plata pulp. Thank you.
Okay, let me try to think. You're asking EUR 24 million, if it's pure cost, yes, it has to go straight to the bottom line. I think what you're trying to say, wait a minute, if your volume goes down, then your group overhead and all the other stuff is going to burn that. That, as before, hopefully some track record we need to adjust too as well. When the company is and when it gets smaller, then the overhead needs to get smaller too. We expect that EUR 24 million goes straight to the bottom line. Then in addition, and I will not give you a number, that customer or product portfolio optimization that I talked about, that we try to get rid of the lowest price volumes will add to that number, to some extent.
If you don't mind, I will not give you an exact number.
About the pulp balance, if you can-
I'm sorry. Did you ask whether this First of all, it's a smaller impact because the Skutskär machine is a recycled fiber-based machine, so there is no pulp. I believe the Kvarnsveden number 11 is TMP-based. Neither one has chemical pulp impact. Remember, it's all long fiber to start with, even virgin fiber.
All right. What about the impact from the overall volume decline in the paper segment? Fine paper, I think particularly.
Nothing dramatic in that sense, because if you leave out the Montes del Plata stuff out, remember, we were a bit short on short fiber anyway.
Quarter of a million tons, and then we've been long on long fiber, and we'll dry it and sell it then. I don't think it's a negative in that context at all.
All right. That's all I had. Thanks.
Thank you.
We will take our next question from Henri Parkkinen from Pohjola Bank. Please go ahead.
Yes, hi. First of all, good afternoon for everyone. I have two questions. My first question refers to your slide number 16 when you had some figures concerning variable costs. When going more in detail, we have seen that the wood prices in Sweden, they have come down quite dramatically during last part of 2012. What kind of impact it had in your P&L during the fourth quarter, and what should we expect on the first quarter of this year when taking into account that there might be some delay in your sourcing and impact on your profit and loss account? Second question regarding your newsprint capacity closures.
Yes, you are taking 475,000 tons out of the market. We saw last year that European shipment volumes in newsprint, they came down by some almost 5%. How sensitive you see that those export volumes from Europe are for foreign exchange changes? We have now seen that euro is quite strong against US dollar. Could you please open these dynamics? Thank you very much.
First of all, on my slide 16, there is a comparison on Q4 versus Q4 2011, and there is a comparison between Q3 2012 and Q4 2012, just to be very clear. We have variable cost coming down compared to a year ago quarter. Between Q3 and Q4, we had a negative because of the maintenance of Skoghall and of the fixed cost on salaries, which is seasonal, always hitting us. Going into Q1 2013, I previously said that we will, which is part also of the guidance, we will have maintenance in Veracel, which will have an impact of a ballpark of EUR 10 million. I think with that, I have answered your question, right?
Yes. Okay. Let's put it this way, because I'm wondering, these two pictures, both of these are showing plus something for Q4 comparing the Q3, and then on a year-over-year base. Of course, there are some maintenance issues. Yes. That's fair enough at this stage. Yes.
Okay. The second question, can you repeat that part so I'll get a better understanding of it? Because I'm not sure I understand.
Yes. Talk about this 475,000 tons newsprint capacity you are taking from European markets. You say that you expect that this will have a material impact on demand and supply situation in Europe. One part of these volumes is also, of course, export volumes from Europe outside export. My question is that we have now seen that euro has strengthened against dollar, how sensitive these European export volumes are for currency changes. That's the question, yeah.
Well, we can probably continue with the currency sensitivity overall on dollar. Just to be clear, if there would be no net exports from Europe, only saw newsprint production capacity of 2.5 million tons bigger than the European demand. That's a horrendously big number. When you take into account the net exports, then that turns into less than 0.5 million tons. I don't think you could analyze saying, "Well, what if there's no net export?" We get to your real point, which is true, but if the dollar stays at 135, is that going to make life tougher? The answer is yes. I don't think it's a hugely significant impact.
We watch our Europe versus export balances very carefully. We've actually been very, if I may call it, agile in getting in and out of the exports more than the others. Let me try to think, how do we quantify that now? Because we know the overall currency impact.
We are long in US dollars, if I take the last quarter. That will also be part of the information when we have the annual report out. Basically of EUR 125 million per quarter, we had an average exchange rates of 130. If you go up towards 136 or 135, you're talking somewhere between $5.5 million. It's very important what Jouko said. That is something we deal with every day, because obviously that is affecting our profitability, and that's how we enter the contracts and how you hedge it, et cetera.
For the short term, is that a huge impact in Q1? We'll see how it's going to go through the rest.
Can you live with that very long answer? Yes. If you can, I can also. Thank you.
I can. Thank you.
We will take our next question from Harri Taittonen from SHB. Please go ahead.
Yes. Thank you. Firstly, a question on the paper prices. You indicated that paper prices are under pressure in the first quarter. If I look at the official statistics, you typically see that paper prices trend down during the first quarter, and then they sort of stabilize on the new level sometime in March, April. If I would look at those, then that would suggest that average prices are still higher in Q1 than they are in Q2. Does this also apply to Stora Enso, or are your prices adjusted at the year-end, and then therefore first quarter and second quarter prices are identical?
It's a very good question. I'm afraid I'm not going to be willing to totally answer that. Number 1, as you well know, we're in the 60%-70% phase of the pricing negotiations. The one thing I would not definitely want to start quantifying is, because it's very different in different grades and very different in different geographic markets also. Maybe this would be helpful. We are very focused on the price and quality as always. Even in situations where we need to live a little longer period with monthly contracts rather than longer term contracts, we're very happy to do that because we believe that further in the year these price levels need to not only stabilize but even hopefully improve because the profitability issue. Let me go this far.
I don't see the trend that you're saying that Q1 would be somehow better by any means than Q2 and forward. Maybe that's the best I can say.
All right. That's helpful.
Pricing negotiation.
I understand. A sort of a follow-up, more longer term. If we look at this transformation process of yours, the big investment into non-paper operations. At last year's Capital Markets Day, you were presenting your paper operations and cash flow from paper operations as one of the key funding sources for these investments. Now, I don't know what kind of projections you have, but the cash flow from paper seems to be lower this year than what I had in my estimates last year. My question really is that, do you still see that paper is producing the cash flows that you expected to fund these investments, especially as the remedial action that you're taking by closing capacity has upfront cash costs, and then in longer term, you get the savings or the sort of positive cash flow impact from this.
Do you have to drive, participate in some sort of more drastic action when it comes to European paper or maybe say consolidation? That's what I mean.
Well, many questions actually. The short answer to your first question is absolutely I believe it. The cash engine that has performed for years and years through some very difficult years, I don't want to remind you everything from my day on the Russian wood duties, you name it. Essentially, we have one proof of it. Even when things really went wrong in 2009, we lost, I just released 20 margin points from that. We keep the cash engine ticking with all cylinders for a few quarters, first of all, when you take volume out and you manage your supply chain, there is a cushion effect, you see it in our group cash flow. Having said that, obviously, if you don't do anything, there is an end to that.
You can't just sit back and wait, which is why we're taking the action now we're taking. Therefore, the longer version of the answer is yes, I believe, even with the one-time cash flows that we have included, for example, the Capital Day analysis, that this has been and continues to be a good cash generator. Now that we're talking about newsprint, remember I said a year ago, between my six years and six weeks, newsprint has to be the best cash engine in the whole company. The EBIT has gone all over the place, cash has been there. That's definitely an answer. Your second or third question was about consolidation. I think I'm still today saying, yeah, I'm consolidating. Consolidating Stora Enso assets with good cash returns and making sure that the cash engine keeps going.
I think we have some track record to prove that. As we discussed in the Capital Markets Day, when you talk about consolidation across companies, you get the different issues of value loss. When you get to too high customer shares, you can manage it, and the dynamic is relatively challenged. We're in it, and we're driving it as Stora Enso now.
I think it's important to link to that what Jouko said. We are doing a lot of investments in the other areas where we want to grow. Renewable packaging and Biomaterials.
Okay. Thank you.
Thank you.
We will now take our next question from Oskar Lindström from Swedbank. Please go ahead.
Yes, hello. A couple of questions. The first one refers to the structural element of the decline in demand for graphic paper. You showed that chart showing how that decline had been faster than at least that third party institute expected, and I guess faster also than you had expected. Has that led you to speed up, or should it lead you to speed up investments in your expansion areas?
Well, first of all, no criticism to any outside party, I think we've been less wrong than most others. The fact that the plan today is the proactive part of our strategy that we've seen and we communicated very clearly, I dare to say as the first company in the industry saying, this is reality and it's happening. The trend has been 5%, I think overall it went to 6% last year in a couple of segments all the way to nine. Yes, the recent four to six months has been more rapid, I think driven also by the economic cycle. That does not change my view on the strategic structural change. It doesn't mean that it's all going to be now 9% forever or 7% forever or whatever. It is the reality right now.
Second point, when the cycle drives demand down, we see and we've seen it in the earlier years, when advertising moves digital, it doesn't come back. To some extent, that cyclical demand reduction tends to become somewhat permanent. That we need to understand. Then to answer your last question, should we accelerate investments in renewable packaging and biomaterials? Remember, I came from a pretty fast-moving industry, I still haven't figured out the tree still grows seven years, as hard as we work, it's a couple of years to build a couple of these big mills. It's more the physics of the fiber base and the construction in this investment that is the speed limit, so to say, for me, rather than anything else. That, unfortunately, in some ways means that impatient me has to be a little more patient than I'd like to.
When you want to see that the cash is coming back from these new investments, well, that's going to take some time. I don't know how to build a pulp mill or an integrated mill in China in 12 months.
No. A follow-up question to that. Far, the emphasis has been on organic growth and building new production facilities in biomaterials and renewable packaging. You've done some acquisitions. Is that sort of an avenue that you think you will explore, do more of in the future? Acquisition-driven growth?
We'll continue on that path. We have Inpac, which I just reviewed in Beijing a couple of weeks ago. I think very exciting opportunity. To me, it's like a small tree in the woods trying to grow very quickly. Bulleh Shah Packaging now in Pakistan also, I think a very interesting market opportunity. Clear, strong complementary between us and our partner. Yes, I'd like to see quite a few more of those type of things, where you don't spend billions and try to fix something. You spend many millions, and then you try to grow with our network, our expertise, our everything. It's faster than the standalone unit could. Does it mean that we would never consider a somewhat bigger acquisition to speed up the transformation? Sure.
We still need to be very that we understand that we have the strength in our balance sheet and liquidity to complete the big investments we have announced and so forth, which could mean then also that we could think about other venues than just pure cash deals. Clearly, I hope our strategy is clear, at least in that context.
We would invest in growth markets, not in shrinking markets in terms of acquisition.
Okay. Just two final questions. How important is your ownership in Bergvik Skog as you scale down your Swedish publication paper operations? Is it becoming less important to have that ownership stake?
The short answer is no. Remember what I said. One of the two machines we are talking about now is actually bought in Skutskär. The one that we bought in Skutskär, the ultimate thing here is recycled fiber-based. There's no impact on Bergvik interest. Remember, we got some great, very high value-creating packaging assets in Sweden and so forth. We believe that Bergvik is a great partner in critical ownership, even if we shut one virgin fiber-based newspaper.
Because we are a huge buyer of fiber outside Bergvik in Sweden as well.
Absolutely.
Yes.
Bergvik is very important to us.
Okay. Lovely.
Should we still expect the completion of the Chinese project or startup during Q4 2014, or should we start looking at that for 2015 instead?
Kalle is watching this. I'll have to be precise here. Essentially, what Kalle said is true. In April 2012, we said we expect it from latest December 31 or in the second half, essentially. That, which is a critical kickoff point then for the bigger implementation and so forth, we'd expect to be end of 2014. There is no big trauma. It's now six weeks beyond end of 2012. You should not take and know there's a huge delay and so forth. Like Kalle already said, once we get the final approval, then we will come back to the market and update the schedule again. You get the flavor, I hope.
All right. We should wait for that. Good. Those were my questions. Thanks.
Thank you.
Thank you.
We will take our final question from Natin Diaz from JPMorgan. Please go ahead.
Good afternoon, gentlemen. Thank you for taking my question. My question was mainly on the CapEx. Of the EUR 561 million that you spent in 2012, can you give us a sense of how much of it was related to the Montes del Plata equity, and how much was related to the underlying CapEx for the Stora Enso assets? The second one was, on the EUR 115 that you have spent in 2012, was that related to the Inpac acquisition?
If you go to, I think it's page number seven, we have said that for 2012, the equity injection into Montes del Plata joint venture in Uruguay was EUR 115 million, if that was your question.
Okay. That's helpful. Is that included in the EUR 560 million number, or is that in the EUR 150?
No. That's why we keep it, because the EUR 556 is pure CapEx. The EUR 115 is an equity investment in a joint venture that we put in partly equity and partly we guarantee some financing. Okay. That number for next year is also part of my slide 20.
In page seven, right? The EUR 110 million-EUR 130 million.
Yeah. Which basically half of that is the remaining input into Montes del Plata, and half of it is the Bulleh Shah investment in Pakistan.
Okay. Understood. Then a follow-up would be that if your CapEx for 2012 is about EUR 556, your like-to-like CapEx drops down significantly, EUR 350-EUR 400 in 2013. Can you give us a sense of how you're cutting down your CapEx so much over one year? Is it because the projects won't be repeated?
You have to remember, and that is part of one of the slides that Jouko did. We have some very big investments that is being, so to say, done during 2012 and 2011, which is Skoghall and Ostrołęka. Which Skoghall was finished in Q4, in November, and we are ramping up Ostrołęka in Q1 of 2013.
Okay.
Very important to remember that this is excluding the China investment, which we will tell you once we get the permits ready.
Okay. Just to confirm one point that you mentioned earlier. Of the EUR 110-EUR 130 next year, you are saying half will be for Montes del Plata and half would be for the Pakistan JV. Was that right?
That's correct, sir.
Okay. That's very helpful. Thank you so much.
Thank you.
There are no further questions in the queue at this time, that will conclude today's Q&A session. I would now like to turn the call back to your host today for any additional closing remarks.
Thank you, Samine, and Jouko will now have the final remarks of today.
Okay. I will not repeat everything that's been said. I think this is my 24th quarter, actually, believe it or not. I know I sound like a broken record, but I will say one thing to you. Yes, it's not an easy environment to operate, but you knew that, we know that. Like before, at least 24 times before, 23 times before, we believe that the right thing is to be very transparent about it, and then also demonstrate that the earlier we take decisive action to correct it, the better off we are. We will not wait for others to do something or wait for better times. Thank you very much for today, and I'm sure we'll talk again soon. Thank you so much.
That will conclude today's conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.